CSR in Buyer-Seller Markets: The Impact of Assurance of Sustainability Reports and Material Incentives

• In Event: Continental Breakfast and Research & Education Forum
  In Paper Session: Table 14: CSR Assurance

Abstract

This paper uses a laboratory experiment to investigate how assurance of sustainability reports and material incentives for CSR investments affect behavior of sellers and buyers in competitive markets. Specifically, we examine how these two factors affect 1) seller’s CSR engagement and their sustainability reporting, and 2) buyer’s partner selection choices. In our market experiment, sellers get the chance to invest in CSR by donating part of their profit to charity (the Red Cross). Besides a price offer, sellers also prepare a sustainability report in which they make a disclosure about CSR investment. The reported amount may deviate from the actual donation. Buyers can base their partner selection on this information. In these markets, we manipulate whether or not there is assurance of seller’s sustainability reports and whether or not sellers receive material incentives for CSR investments. We posit that in competitive markets, sellers may use sustainability reports as a signaling device to signal to potential buyers that they have other-regarding preferences. Results show that when assurance is combined with material incentives, sellers are more willing to invest in CSR and buyers are willing to pay higher prices. Our findings qualify prior studies on assurance suggesting that assurance enhances credibility of sustainability reports and actual CSR investment, in particular when sellers receive incentives for CSR. We further qualify the literature on the crowding out effects of incentives by showing that incentives in competitive markets can act as supportive intervention by governments to enhance CSR investments.

Authors

• Karen De Meyst, KULeuven

• Eddy Cardinaels, Universiteit van Tilburg

• Alexandra Van den Abbeele, KULeuven